Monday, February 24, 2014

Mansion Tax: all-party consensus?

A mansion tax may be likely within a couple of years with Labour and the Lib-Dems both wanting one. Today in The Times 'Mansion Tax 'could hit directors' ability to get loans' (Deidre Hipwell), Lord Adonis is reported as saying that the idea is unpopular with 'anybody who is well off ' and James Sproule of the Institute of Directors says that company directors may find the collateral value in their property is cut. This would be a double whammy against SME businesses. What is needed is a way to introduce the tax fairly so that the ordinary homeowner, at least the asset rich / cash poor ones, who will be hit by an annual mansion tax of 1% on their £1m plus value home, can cope with paying.

An accepted principle of taxation is that it is an awful lot easier to work if the tax can be paid out of an income stream, ideally one that brings the liability - which is why income tax and VAT are so easy to work. The problem is the value of a home doesn't produce cash until a sale. To stop the outcry at the difficulties of paying the new tax each year, why not let anyone who pays mansion tax on their usual residence to set it off against their income tax bill? Even many Conservative voters would probably tolerate mansion tax this way.

Ordinary home owners would see no income reduction - including company directors guaranteeing their loans against their residence. The housing market would be damped down making homes more affordable probably right down the range, even below the £1m threshold. But company-owned houses and second-home owners would be liable for the tax without relief, raising more for the exchequer, which is always a helpful thing when embarking on the messy business of reforming tax. It would also be a wise thing that business loan collateral in property is considered more realistically. To have to rely in every business cycle on a property speculation bubble to back funding for a (non-property development) business is a little mad when such loans should be made on the strength of the business case.Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom